RBI clarifies on New Definition of Micro, Small and Medium Enterprises (MSME)

The government of India vide Gazette Notification S.O. 2119 (E) dated June 26, 2020, has notified new criteria for classifying the enterprises as Micro, Small, and Medium enterprises effective from July 1, 2020. Under the new criteria for the classification of MSMEs, enterprises are reclassified under composite criteria (investment and turnover) and there is no more distinction between Manufacturing and Service MSMEs.

The government of India (GoI), vide Gazette Notification S.O. 2119 (E) dated June 26, 2020, has notified new criteria for classifying the enterprises as Micro, Small, and Medium enterprises. The new criteria came into effect on July 1, 2020. According to the new notification, these enterprises are reclassified under composite criteria (investment and turnover). and there is no more distinction between Manufacturing and Service MSMEs.

The Government made further modifications On January 19, 2022, to the earlier notification stating “The existing Entrepreneurs Memorandum (EM) Part II and Udyog Aadhaar Memorandum (UAMs) of the MSMEs obtained till June 30, 2020, shall remain valid till March 31, 2022.” Further, it is clarified that the validity of documents obtained in terms of O.M. No.12 (4)/ 2017-SME dated March 8, 2017 (RBI Circular FIDD.MSME & NFS.BC.No.10/06.02.31/2017-18 dated July 13, 2017), for classification of MSMEs up to June 30, 2020, is also valid up to March 31, 2022.

The Composite criteria of investment and turnover for classification are as under.

1) A composite criterion of investment and turnover shall apply for the classification of an enterprise as micro, small or medium.

2) If an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover, it will cease to exist in that category and be placed in the next higher category but no enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover.

(3) All units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as a micro, small or medium enterprise.

On January 19, 2022, to the earlier notification, the Government clarified that “The existing Entrepreneurs Memorandum (EM) Part II and Udyog Aadhaar Memorandum (UAMs) of the MSMEs obtained till June 30, 2020, shall remain valid till March 31, 2022, and documents obtained for classification of MSMEs up to June 30, 2020, are valid up to March 31, 2022.

On May 19, 2022, RBI issued a circular based on a Government notification dated May 06, 2022, clarifying that:

“The existing Entrepreneurs Memorandum (EM) Part II and Udyog Aadhaar Memorandum (UAMs) of the MSMEs obtained till June 30, 2020, shall remain valid till June 30, 2022, and documents obtained for classification of MSMEs up to June 30, 2020, are valid up to June 30, 2022.

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